Lippo eyes real estate investment fund listing in Indonesia

JAKARTA - Lippo Karawaci is looking to list a real estate investment fund (Reif) in Indonesia, coming after the listing of two real estate investment trusts (Reits) in Singapore: First Reit in 2006, and Lippo Malls Indonesia Retail Trust in 2007.

In a recent interview with The Business Times, Lippo Karawaci executive director Mark Wong said the company has filed to set up the fund, which will hold four office buildings (Menara Matahari, Menara Asia, Lippo Kuningan, and Berita Satu Plaza) and a distribution centre in Balaraja, Java, Indonesia. The fund is conservatively valued at 2.2 trillion rupiah (S$228 million).

Named DIRE Bowsprit Commercial and Infrastructure, the fund could boast a distribution yield of as much as 9 per cent, although Mr Wong cautioned: "It's very theoretical at this point."

Lippo Karawaci is the largest real estate developer in Indonesia by total assets and revenue.

It adopts an asset-light strategy, by which it injects stabilised properties into property trusts and funds to recycle capital.

Reifs are like Reits, insofar as they hold real estate and distribute a regular stream of income to unitholders.

But they take the form of a mutual fund with a collective investment contract rather than the Singapore Reit trust structure, said Todd Lauchlan, international director and country head for JLL Indonesia.

There is also no concept of a trustee in Reifs, whereas in Singapore trustees are responsible for the custody of Reits' assets, and oversee the activities of the Reit manager to ensure compliance with the trust deed and regulatory requirements.

Lippo Group last October made headlines when a Reuters report said that the conglomerate plans to shift its two Reits in Singapore to Indonesia to benefit from the removal of double taxation - on both the Reits' rental income and distributable income - announced by Jakarta. With the change, only rental income will be taxed - albeit a hefty 10 per cent.

First Reit owns mostly hospitals in Indonesia, while Lippo Malls Indonesia Retail Trust owns domestic shopping centres. When asked, Mr Wong declined to discuss the Reits' plans, saying the managers operate independently.

Even though the sponsor owns 100 per cent of the managers, they own only about 30 per cent of each Reit.

"It is not for me to discuss what will become of (the Singapore Reits) going forward, but suffice to say that Lippo Karawaci will remain a meaningful sponsor and the holdings at this level will be considered appropriate," he said.

Indonesia is taking concrete steps in rapid succession to remove barriers still standing in the way of a tax-efficient Reif market.

For example, the final tax (a tax paid by sellers on a property transaction value) has been reduced from 5 per cent to 0.5 per cent for Reifs.

Mr Wong said: "OJK (the regulator) is keen to get things started and its model is actually the Singapore Reit model."

Nurhaida, commissioner for capital market supervision at Indonesia's Financial Services Authority, has visited Singapore to meet with the Monetary Authority of Singapore (MAS) to gather views on Indonesia's plan to push for more Reit-like listings by Indonesian firms in their home market.

Indonesia has, for example, emulated Singapore's 45 per cent gearing limit on Reits.

Still, there are other tax hurdles to cross, such as a capital gains tax of 25 per cent applied on the seller/sponsor based on an annual third-party evaluation of a property asset, and a transfer tax of 5 per cent paid by the buyer on the value of a transaction.

Mr Lauchlan said that the central government has issued a directive to reduce the transfer tax, but this will require provincial government agreement.

In his interview, Mr Wong also said that local governments may not be willing to make concessions on the tax front, as taxes are an important source of revenue for them.

He said the expectation is that the ongoing tax amnesty programme will benefit the property sector, because property remains a traditional favourite that gives high returns in Indonesia. Besides property, incoming funds can also move into Reifs.

"Of course, we hope that the money comes back for good, but there will be those who are looking at the shorter term, and the Reif provides liquidity. Both ways will benefit the property sector," Mr Wong said.

So far, there has been only one Reif listing - in 2012 by Ciptadana, which is affiliated to Lippo. It holds just one property: a mall in Solo, Central Java valued at 400 billion rupiah.

This article was first published on September 26, 2016.
Get The Business Times for more stories.